US recession hits garment suppliers in India

Anirvan Ghosh, TNNMay 2, 2008, 12.40am IST

BANGALORE: As the US shows definite signs of recession, Indian suppliers to retailers like Wal-Mart, Target and Gap are feeling the heat.

New orders are difficult to come by, and profits are down. JVS Group MD Britto M Joseph says business is down by around 15% since the recession. The company has big clients such as Wal-Mart and Target in the US, and Tesco, UK's largest retailer. "They are facing lower demand from consumers, and so are hardly placing new orders," says Mr Joseph. Target and Wal-Mart want him to sell at lower prices. He has refused, citing the rise in cotton prices by 25% and the rupee rise.

"Gap has ordered lesser than what it did last year," says Gokaldas Exports MD Rajendra Hinduja. The company is India's largest garments exporter. "Gap is ready to buy the same volumes, but want it at a lower price than last year," he says. Gokaldas earns more than 96% of its revenue from exports to global brands, such as Tommy Hilfiger, Nike and Adidas, and to large retailers such as Gap. It employs over 54,000 people in 46 factories and is one of the largest employers in the garments business.

"The orders are down around 20% as a whole, from the large US retailers, and so are the profits," says Apparel Export Promotion Council (AEPC) director R Balaji. He says because of recession followed by the rupee rise, players like Gokaldas were better prepared. Till last year, before the rise in the rupee started pinching and the US recession set in, business was good. Wal-Mart, Target and Gap, three of the largest US retailers, were also actively sourcing from JVS and Gokaldas.

Blackstone picked up a 50.1% stake in Gokaldas Exports for $116 million or Rs 482.5 crore in August last year.

Mr Joseph is somehow coping with a big buyer in the form of Tesco. "That has offset some of the losses we have had to incur," he says. Gokaldas has also offset this by being able to supply its European clients at the same or higher prices than last year. However, cautions Hinduja, "Even that market might slow down, given the US recession."

Mr Balaji points out another trend—moving the producing units to rural areas—to get lower production costs and supplying to the booming domestic market to players like Reliance. Mr Joseph agrees that the domestic market is also offsetting a part of the losses.

But they also have to deal with online bidders who are swarming from all over the world. "These vendors are agreeing to sell at a lower price than us," says Hinduja, "to players like Wal-Mart."